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Wall Street Slumps Again as Investors Shun Risk

By Leah Schnurr

NEW YORK | Wed Aug 10, 2011 6:25pm EDT


(Reuters) – U.S. stocks tumbled more than 4 percent on Wednesday, almost wiping out gains from a relief rally

the previous day, as rumors about the health of French banks sparked concern that the euro zone’s debt crisis could claim new victims.

The rumors tapped into investors’ worst fears of contagion. French bank stocks tumbled and led European and U.S. markets lower —

the Dow closed at its lowest level in almost a year. Gold hit another record high and investors pushed into U.S. Treasuries,

still viewed as the safest place to park cash despite the credit downgrade from Standard & Poor’s last week.

“What we’re seeing here is the fear and rumor-mongering that’s coming out of Europe. It eerily reminds me of the fall of 2008,

where you would see one financial institution after another be lined up in the cross-hairs of the traders,” said Cliff Draughn,

chief investment officer at Excelsia Investment Advisors in Savannah, Georgia. READ MORE>>

Stocks Nose-Dive Amid Global Fears

Weak Outlook, Government Debt Worries

Drive Dow’s Biggest Point Drop Since ’08


Stocks spiraled downward Thursday as investors buckled under the strain of the global economic slowdown

and the failure of policy makers to stabilize financial markets.

The selling began in Europe and continued in the U.S., where stocks plunged from the opening bell. The Dow Jones

Industrial Average posted its worst point drop since the financial crisis in December 2008, falling 512.76 points, or 4.31%, to 11383.68.

Oil and other commodities were also hammered. Even gold was a safe haven no more as prices fell. Asian markets slid on Friday morning,

with Tokyo, Australia, South Korea and Hong Kong markets all falling more than 3% in early trading.

Stocks plunged, driving the Dow Jones Industrial Average down more than 500 points, as investors worried about the

global economy and Europe’s debt crisis. Paul Vigna has details.

“It was an absolute bloodbath,” said John Richards, head of strategy at RBS Global Banking & Markets.

There was no one single catalyst for the downdraft, traders said. Rather it reflected multiple concerns that have

mounted over the past month and came to a head this week. Worries about a U.S. default, settled by a last-minute

fix to lift the country’s debt limit on Tuesday, have given way to broader fears about the failing health of the domestic economy.

That will lead to close scrutiny of Friday’s jobs report.

Investors are also questioning how much longer the recent run of strong corporate earnings can continue. Amid other troubles,

corporate profits have been a rare bright spot.

In Europe, leaders are grappling with a widening debt crisis, which started in Greece and spread to Italy and Spain. An earlier bailout of

Greece now appears insufficient. There are growing concerns about European banks and their heavy investments

in the debt of countries with big fiscal problems.

The nervousness among investors is being reflected in the extraordinary rally in U.S. Treasury bonds, regarded as

a safe haven for investors in times of turmoil. The yield on the 10-year Treasury note, which falls as prices rise,

tumbled to just 2.46% at 3 p.m. Thursday, the lowest since October of last year.

The carnage in stocks was the Dow’s ninth down session in the past 10. With losses totaling 11.1% from its 2011

high hit in April, the index has entered official “correction” territory.

The Dow’s decline was its biggest point drop since the market was plunging amid a crisis of confidence in banks in late 2008.

On Thursday, the focus has shifted to world governments, which are laboring under mountains of debt

and have diminished ability to prop up the financial system.

Downward Dow

“I’m just sorry to see my retirement going to hell,” said Robert Slocomb, an 82-year old retired Kodak optical

engineer in Rochester, N.Y. Mr. Slocomb blamed the government’s handling of the economy for the stock market’s woes.

In the first half hour of trading Thursday the Dow lost 1.3% and by noon the widely followed benchmark was down more

than 2.7%. Most of the selling appeared to be from longer-term stock investors, rather than hedge funds, which

have mostly been in a defensive mode for the last several months.

For a time during the afternoon stocks stabilized with traders wondering if bargain hunters had come on the scene.

But the selloff soon resumed.

Wall Street firms had little appetite for holding stocks and other riskier investments on their books, and their traders

dumped stocks into the closing bell. The Dow lost more than 155 points in the last hour of trading.

Some traders said the plunge put the market more in sync with the state of the U.S. economy. “The market sold off 500 points,

it’s not a crash, it’s a small correction,” said Stephen Holden, a floor trader at the new York Stock Exchange.

“It’s overdue…I think there’s more to go.”

“In this environment, no one wants to catch a falling knife,” said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management.

Volume on stock exchanges has spiked in recent days, a sign that more investors are piling into selling.

For much of the year, volume had been weak as many investors stood on the sidelines. Some 7.5 billion shares

changed hands in NYSE composite trading, the highest since May of last year, when investors were also fretting about European debt and the U.S. economy.

The Chicago Board Options Exchange Volatility Index, known as the “fear gauge,” broke above 30 for the

first time since March 16, rising 35% to 31.66. A higher reading suggests increased volatility in markets, and nervousness among investors.

Still, that’s a far cry from the depths of the 2008 crisis, when the so-called VIX almost reached 100.

Investors have grown frustrated with efforts by policy makers to deal with the challenges posed by big overhangs of government and consumer debt.

“Their solutions are too late and no one is taking a longer-term, more-considered approach to problems,” said Benjamin Segal, head of

global equities at asset manager Neuberger Berman.

In the U.S., investors fear the economy could be heading for a double-dip recession. The Federal Reserve is seen as limited

in its ability to provide yet another shot in the arm. Interest rates are already essentially at zero and two rounds of

quantitative easing, in which the Fed pumped $2.3 trillion into the financial markets, failed to get the U.S. economy strong

enough to stand on its own. Meanwhile, given the push to trim deficits, significant economic stimulus from the

U.S. government is seen as unlikely. “You look at monetary and fiscal policy and it’s very hard to find

a powerful lever that somebody can pull,” said Mr. Richards of RBS.

Investors have been equally underwhelmed by the official response to the European debt crisis. That was the case on Thursday

when the European Central Bank outlined steps to shore up confidence in European banks in the face of deteriorating conditions in the bond market.

The ECB also conducted purchases of bonds, traders said, but that may have backfired. Traders said the ECB bought

Irish and Portuguese bonds, but didn’t appear to buy bonds from Italy or Spain, countries which are seen as most at risk from the spreading crisis.

The ECB’s efforts came on the heels of the steps by the Swiss National Bank and Bank of Japan to halt the rise of the

Swiss franc and Japanese yen, respectively. Investors weren’t convinced that either moves will have much long-term success.

“There’s the idea that they are pushing against a string,” says Robert Lynch, head of currency strategy for the Americas at HSBC.

—Jonathan Cheng
contributed to this article

Putin calls U.S. “parasite” on global economy

[stream flv=
Opinion Journal:

The Politics of Debt 8/3/2011 1:17:24 PM

House majority leader Eric Cantor


Wall Street Journal columnist Peggy Noonan

discuss the debt ceiling deal and the political fallout.

[stream flv=

Economic Fears Hit Global Markets


Worries about the global economy rippled through financial markets on Tuesday, driving down share prices

from Tokyo to New York and placing new strains on Spanish and Italian bonds.

WSJ’s Charles Forelle and Michael Casey join the News Hub to discuss pressures on U.S. and world markets caused by weak economic data. Photo: Reuters

Concerns that have been building for days erupted into a selloff that began in Asia, gathered steam in Europe and culminated in a sharp, late-day drop in New York. As the dust settled from the acrimonious debate in Washington over the debt ceiling, investors turned their attention to mounting evidence that the global economy is weakening. Data in recent weeks has shown that the economic “soft-patch” seen around the world in the second quarter is proving deeper and more entrenched than many investors had thought would be the case.

Worries about the economy pushed the Dow down 265-points, its eighth consecutive decline and longest losing

streak in nearly three years. Meanwhile, bond prices soared and yields tumbled. Paul Vigna, Jonathan Cheng and Kelly Evans discuss.

“As people take their focus off the debt ceiling…they’re focusing on an economy that looks worse than they had thought,” said Erik Weisman,

a portfolio manager at MFS Investment Management.

U.S. stocks fell for the eighth straight day, the longest stretch of declines since the 2008 financial crisis.

Several measures fell into negative territory for 2011. The Dow Jones Industrial Average dropped below 12000,

plunging 265.87 points, or 2.2%, to 11866.62. In its eight-day decline, the blue-chip index is down 6.7%. In Europe,

Italian and Spanish bond markets continued their decline, sending yields to euro-era highs. European bank stocks,

too, also suffered sharp losses and broader stock indexes tumbled.

Investors sought safe havens, driving yields on U.S. Treasurys and German Bunds to their lowest levels since November.

U.K. 10-year bonds hit their lowest yields in history. Gold prices hit a fresh record high at $1,641.90 per ounce, up $22.90.

The concern among investors is that with the U.S. and Europe hamstrung by heavy government and consumer borrowing,

slowing economies will make it that much harder to whittle down those debt levels. A string of weak economic reports,

including an unexpected decline in July consumer spending posted Tuesday, has investors rethinking expectations

for a strong second-half rebound. Investors are bracing for a poor July employment report on Friday.

While the resolution of the debt-ceiling crisis soothed investors’ worst fears of a U.S. default, it left hanging

over the market the prospects of a credit downgrade. Moody’s Investors Service said late Tuesday it would keep

the U.S. at its top triple-A rating, but with a negative outlook. Among the potential triggers for a downgrade are

weaker-than-expected economic growth, Moody’s said. Fitch Ratings and Standard & Poor’s

are also reviewing their top ratings for U.S. debt.

In Europe, there has been a steady erosion of the relief seen just two weeks ago when officials there unveiled

a new bailout plan for Greece. That plan was supposed to shore up confidence that Italy and Spain would

be walled off from damaging contagion of the euro zone’s debt crisis. But with each passing day,

skepticism has mounted that the deal didn’t go nearly far enough.

“The whole point…in July was to put an end to the rot,” said Gabriel Stein,

director at Lombard Street Research in London. “And they didn’t.”  READ MORE>>


Credit Rating Change Still May Cause

Economic Nightmare for U.S.


US Treasurys Now a ‘Toxic Asset,’ Debt Deal Won’t Fix It

Saturday, 30 Jul 2011 04:13 PM

By Forrest Jones and Ashley Martella

The United States may lose its AAA rating by defaulting on its debt and

it will be very hard to get that rating back, says Robert Wiedemer, financial commentator and best-selling author of “Aftershock.”

Lawmakers are at an impasse on agreeing on terms to lift the government’s $14.3 trillion debt ceiling and avoid an Aug. 2 default.

Republicans and Democrats want to lift the ceiling but disagree on how to reduce the deficit in exchange for lifting the White House’s borrowing limit.

They will probably strike a deal and lift the ceiling, Wiedemer says, but they may not do it in time, and credit ratings agencies may strip the country of its AAA ratings.

Read more>> on Wiedemer: US Treasurys Now a ‘Toxic Asset,’ Debt Deal Won’t Fix It

Treasury Warned: Dollar’s Reserve Status ‘Slipping’

Wednesday, 03 Aug 2011 02:00 PM

The committee of bond dealers and investors that advises the U.S. Treasury said the dollar’s status

as the world’s reserve currency “appears to be slipping” in quarterly feedback presented to the government.

The Treasury Borrowing Advisory Committee, which includes representatives from firms ranging

from Goldman Sachs Group Inc. to Pacific Investment Management Co., said the outperformance of

safe-haven currencies and those from emerging nations has aided in the debasement of the dollar’s

reserve status, according to comments included in discussion charts presented ahead of

the quarterly refunding. The Treasury published the documents today.

“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of

presentation made by one committee member said. “The fact that there are not currently viable alternatives to the

U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”

Members of the TBAC, as the committee is known, which met yesterday in Washington, also discussed

the implications of a downgrade of the U.S. sovereign credit rating. “None of the members thought that

a downgrade was imminent,” according to minutes of the meeting released by the Treasury. READ MORE>>





David Cheriton, who taught Sergey Brin and Larry Page at Stanford University in California and became a billionaire

as Google grew, said that America’s innovators and investors were being driven overseas in search of opportunity.

The BBC’s Matt Frei spoke with Prof Cheriton on

the Stanford campus  TO SEE VIDEO CLICK HERE>>


S&P Signals Top Credit Rating Is in Danger,

Stoking Political Battle on Deficit

A blunt warning Monday from a credit-rating firm about the U.S. government’s mounting debt pushed stock markets lower and intensified political divisions in Washington about how best to tackle growing deficits.

Both the Obama administration and House Republicans scrambled to gain leverage from Standard & Poor’s changing its outlook on U.S. Treasury securities to “negative” from “stable.”

S&P didn’t lower its top-notch AAA-bond rating for U.S. government Treasury securities, and their prices initially fell but later rebounded amid optimism that the report could serve as a catalyst to force both sides in Washington to compromise.

Comparing Debt Ratios

Here’s a look at S&P’s credit rating and outlook among advanced economies and emerging economies, as well each nation’s debt-to-GDP ratio, starting in 2006 and projected through 2016.

The Dow Jones Industrial Average fell 140.24 points, or 1.14%, to 12201.59, its biggest decline in a month, after earlier tumbling almost 250 points. Stocks in Britain, Germany and France fell more than 2%, with most of the declines coming after the S&P news, and in early trading Tuesday, Japan shares fell 1%. Gold surged to just below $1,500 an ounce..READ MORE>>

WSJ: Japan, Korea React Coolly to U.S. Debt Warning

  • [goldrush1]

    Tech prospectors are fighting over buzzy start-ups and companies are getting their pick of deep-pocketed backers. The momentum is driving a wave of deal envy among bankers, speculators and venture-capital veterans.

BRICS meeting shows shift from West

Updated: 12:19, Friday April 15, 2011


[stream flv=


flv=Leaders of five of world’s largest emerging economies meet in China to discuss their role in world affairs,

the Middle East and commodity prices; may discuss how to limit future role of dollar in global finance and commerce. Arnold Gay reports. ( Transcript )

A summit of the world’s biggest emerging economies has highlighted a shift in power away from the US and Europe.

The populations of Brazil, Russia, India, China and South Africa account for 40% of the world’s people.

And those countries are experiencing the kind of economic growth that most in the West can only dream about.

Following the day-long summit meeting of leaders from the five nations in the Chinese resort of Sanya, a declaration was released calling for a greater role in global financial decision-making.

‘We call for a quick achievement of the targets for the reform of the International Monetary Fund agreed to at previous G20 Summits and reiterate that the governing structure of the international financial institutions should reflect the changes in the world economy, increasing the voice and representation of emerging economies and developing countries,’ the declaration said.

The EU and America are still struggling to emerge from the financial crisis.

The five developing countries – known as Brics, an acronym coined by the investment bank Goldman Sachs – account for 45% of the world’s economic growth between them.

‘Brics are going to be the dominant force,’ said HSBC’s global head of research Bronwyn Curtis, speaking on Jeff Randall Live.

The new tax havens

March 27, 2011 4:15 PM

American companies are finding new overseas tax havens to legally protect some of their profits from the U.S. tax rate of 35 percent, among the highest in the world. Lesley Stahl reports.

A look at the world’s new corporate tax havens

Read more:









A “Bottom-Line” Outlook for the U.S. Economy

BY MARTIN HUTCHINSON, Contributing Editor, Money Morning

Clearly, if Congress cuts back on government spending in the New Year, we can expect to see some acceleration in growth. However, that acceleration will be brought to an end – probably in 2012 – by the surge in inflation from the U.S. central bank’s amazingly accommodative monetary policy, which will cause a rise in interest rates and a crash in commodity and U.S. Treasury bond prices. This development – combined with the still-troubled U.S. housing market – will spawn a new (actually, a renewed) banking crisis. And that will make the next recession an exceptionally nasty one, with a market “bottom” and spike in unemployment that’s deeper and more damaging than the predecessor that ended in 2009. However, there could be a good-news outcome to this gloom, provided that the second “dip” is followed by restrained public spending, bank bailouts are avoided, and interest rates are boosted to a level that’s at least 2% to 3% above the inflation rate. If those conditions are met, U.S. growth will resume at the traditional brisk U.S. rate, probably with a postrecessionary catch-up to absorb the high level of unemployed people and other resources that have stood idle. That brings us to my bottom line for this New Year U.S. economy outlook. If, as I expect, Congress cuts public spending substantially, while the Fed pursues easy money as long as it can, my prognostication is for rather faster growth in 2011, followed by a nasty financial crisis and second “dip” in 2012 and 2013. After that, if fiscal and monetary policies have been restored to a more normal track, the U.S. economic recovery that follows that nasty spell should be as brisk as what we experienced in the very strong stretch that took place from 1983 – 1985. Now here’s how to profit from it.Actions to take: With uncertainty serving as the watchword in the New Year, investors will want to position themselves to profit should the U.S. stock market run up – while at the same time protecting themselves against possible downturns.

Impossible, you say?  Not if you adopt our Money Morning “protective portfolio” to your own needs. Here are the five steps that you can take. This strategy will allow you to add to your existing holdings in such a way that you will benefit, should the economy (and U.S. stock market) continue to advance. But should the U.S. economy stumble, causing U.S. stocks to do the same, these moves should cushion – or even offset – some of your losses.  READ MORE

Investors looking to adopt such a stance should:

    1. Buy gold: At some point, the U.S. Federal Reserve will be forced to abandon what is clearly the most accommodative monetary policy in modern U.S. history. But until that happens, inflation remains a real threat. And that means you need to hold gold. There are many ways to invest in gold. Physical gold is always an option. Exchange-traded funds such as the SPDR Gold Trust (NYSE:GLD) are also worth considering.
    1. Buy dividend-yielding U.S. stocks: Income rules, especially during periods of uncertainty. Most investors fail to realize that dividends account for a major piece of the historic returns that stocks have offered over the long haul. Dividends provide a cushion during the tough times, when stocks are stuck in a trading range, and can help prop up a company’s share prices when the broader market is in decline. One good example right now is B&G Foods Inc. (NYSE:BGS), the Parsippany, N.J.-based maker of such consumer products as Cream of Wheat oatmeal, Maple Grove syrups and pancake mixes, Ortega taco mixes and sauces – as well as many other products that grace American cupboards. The stock currently yields 5.3%.
    1. Reap the best of both worlds: The portion of your portfolio dedicated to U.S. stocks should include several American companies with some muscle in overseas markets. This is a great way to hedge your bets – you get the disclosure and accounting-rule benefits of U.S.-listed companies, plus the growth offered by such fast-evolving overseas markets as China, India, parts of Latin America, and other parts of Asia. Companies in this category would include such U.S. stalwarts as Caterpillar Inc. (NYSE:CAT), McDonald’s Corp. (NYSE:MCD), soda-and-snack-maker PepsiCo Inc. (NYSE:PEP), soft-drink giant Coca-Cola Inc. (NYSE:KO), jet-airliner leader The Boeing Co. (NYSE:BA), and fast-food magnate Yum! Brands Inc. (NYSE:YUM).
    1. Look abroad: It’s no longer a U.S.-centric world. Markets such as China, India, and others can no longer be viewed as portfolio afterthoughts. They must be given serious consideration at the start of the construction of any investment portfolio. In the New Year, one such market that can’t be ignored is Chile, which is positioned to be a top performer in 2011. The most-straightforward way to travel is the ETF route, via the iShares MSCI Chile Investable Market Index Fund (NYSE:ECH). In terms of individual stocks, check out Vina Concha y Toro SA (NYSE:VCO), a producer of very high-quality wine. It’s currently trading at about 21 times earnings, with a dividend of nearly 4.0%. That’s a somewhat premium valuation, but I like the dividend, and Vina Concha is unquestionably a premium company.
    1. Don’t ignore the possibility of an economic downturn: If the U.S. economy experiences a double-dip recession, the U.S. stock market will suffer in kind. We recommend buying out-of-the money “put” options on the U.S. Standard & Poor’s 500 Index. Look at options that are well out-of-the-money. That will allow you to purchase this “insurance” at a reasonable price, and will put you in a position to offset some of your losses with gains on these securities – should U.S. stocks nose-dive. You can purchase these on the Chicago Board Options Exchange (CBOE). Right now, I’m looking at the December 2012 puts with an S&P 500 strike price of 700 (meaning the S&P would have to fall from its current level at 1,186 all the way down to 700 – a 40% decline). This option right now trades at approximately $37. You’ll only make money if the market really crashes – as it did in 2008. But if that happens, you’ll reap a real bonanza.